Obama vehicle plan another pothole for ethanol

By Timothy Gardner

NEW YORK (Reuters) - President Barack Obama's tough fuel economy program for vehicles could put another damper on the struggling ethanol business, because the alternative fuel packs a lower energy content than gasoline.

Obama on Tuesday introduced the most aggressive proposal yet to boost U.S. auto fuel economy standards -- a bid to reduce vehicle emissions of climate-warming gases. [ID:nN19424837]. The proposal would require passenger vehicles to average 35.5 miles per gallon (6.62 liters/100 km) by 2016.

"It's going to be a headache for the ethanol industry," said Daniel Flynn, an analyst at Alaron Trading in Chicago.

Ethanol producers have intensified efforts this year to boost demand for the fuel as stockpiles rise.

They have pushed for wider development of service station pumps that offer a blend of 85 percent ethanol and 15 percent gasoline. The fuel is burnt in specially made "flex-fuel" vehicles that can also run on pure gasoline.

But "flex fuel" cars typically get 20 to 30 percent fewer miles per gallon when they burn E85 due to ethanol's lower energy content, according to the Web site www.fueleconomy.gov.

The industry has also called on the government to hike the level of ethanol in gasoline burnt in normal cars to 15 percent from 10 percent.

Unless ethanol makers convince the struggling auto industry to make specially-built engines that overcome the mileage difference, Obama's plan could be another blow to the industry that had been a big part of former President George W. Bush's strategy to begin to wean the country off foreign oil.